MACRO ECONOMICS

By

Geeta Ghai
[M.Phil*, M.A Economics, B.Ed, M.Com, B.Com]
Basic concepts of Macroeconomics
 Domestic territory
 Normal residents
 Factor income and transfer income
 Final goods and intermediate goods
 Consumption goods and capital goods
 Gross investment, Net investment and

depreciation
 Net indirect tax(NIT)
 Net factor income from abroad
Domestic territory/economic
territory
 Domestic territory means the political frontiers of a
country
 Which includes ships and aircrafts owned and
operated by normal residents between two or more
countries.
 Fishing vessels, oil and natural gas rings and
floating platforms operated by the residents of a
country in the international waters where they have
exclusive rights of operation.
 Embassies, consulates and military establishment
of a country located aboard.
Lets test ourself
 An Indian company in London
 Microsoft office in India
 Company in India owned by Japanese
 Office of reliance industries in new York
 Branch of foreign bank in India
 Indian embassy in Japan
 Branch of state bank if India in china
 Russia embassy in India
 Tata rented its building to Google in America
Count Your marks
 An Indian company in London(×)
 Microsoft office in India (√)
 Company in India owned by Japanese (√)
 Office of reliance industries in new York (×)
 Branch of foreign bank in India (√)
 Indian embassy in Japan (√)
 Branch of state bank if India in china (×)
 Russia embassy in India (×)
 Tata rented its building to Google in America

(×)
Normal residents
 A normal resident is said to be one (i) who
ordinary resides in the country and
 (ii) whose centre of economic interest lies in

that country
 Example Indian working in foreign embassies

in India
Non resident of India
 Example foreigners working in Indian

embassies in Canada and Japan

Citizenship and Resident ship
 Citizenship basically a legal concept based on
place of birth of the person or some legal
provisions allowing a person to become a citizen.
 Resident ship is an economic concept based on
the basic economic activities performed by a
person
 An individual is a normal resident of a country if
he ordinarily resides in the country for a period
more than one year and his center of economic
interest also lies in that country.
Factor income and transfer income

• For rendering factor

Factor services in the
Income production process

• Without rendering
Transfer any productive
Income service in return.
Difference between Factor Income and
Transfer Income
Basis Factor income Transfer income
Meaning It refers to income received It refers to income
by factors of production for received without
rendering factor services in rendering any productive
the production process. service in return.
Nature It is included in both National It is neither included in
Income and Domestic Income national income nor in
Domestic Income
Concept It is an earning concept It is a receipt concept
Recipient It is received by factor of It is generally received by
production. household and
government.
Example Rent, wages, interest and Scholarship, old age
profit. pension etc.
Final Goods and Intermediate Goods

• Either for
consumption or for
Final Goods investment

• Either for resale or

Intermediate for further production
goods in the same year.
Difference between Final and intermediate
goods
Intermediate goods Final goods

These goods remain within the boundary line These goods are outside the boundary line of
of production, and are not ready for use by production, and are ready for use by their final
their final users users

These goods may be used as raw material for These goods are not used as raw material for
the production of other good during the the production of other goods during the
accounting year. accounting year.

These goods may be resold by the firms for These goods are not resold by the firms for
profit during the accounting year profit during the accounting year.

Value is yet to be added to these goods Value is not to be added to these goods

Expenditure on these goods is called Expenditure on these goods is called final

intermediate consumption or intermediate expenditure(C+I)
cost

These goods are not included in the estimation These goods are included in the estimation of
of national product or national income national product or national income
Final goods include capital and
consumption goods

Consumption
goods/
Consumer goods

Semi- Non material

Durable Non-durable goods or
durable
goods goods services
goods
Durable goods
• Used for several years and are of relatively high value.

Semi-durable goods
• Used for a period of one year or slightly more.

Non-durable or single consumption goods

• Used up in a single act of consumption.

services
• Non-material goods which directly satisfy human
wants.
Capital goods
 Capital goods are those goods which help in production of other goods and
services
 Expected life time of several years
 Do not lose their identity in the production process.
 Need repair and replacement over time as they depreciate over a period of time
 They have derived demand
Gross and net investment
 Gross investment is value at the time of purchase of
investment
 Net investment is after deducting depreciation from gross
investment or today’s net value of investment
 Depreciation is deduction in value of investment due to wear
and tear, time passage or expected obsolescence.
Net indirect taxes
 Net indirect taxes = indirect taxes-subsidies
 Indirect taxes refer to those taxes which are imposed by the government on
production and sale of goods and services.
 Example : GST
 Subsidies are the “financial assistance” given by the government to the firms and
households, with a motive of general welfare.
Net factor income from aboard
 It refers to factor income received by normal
resident from aboard less factor payment to
aboard (FIFA-FITA)
 Components of NFIA
 Net Compensation of employees from aboard
 Net Income from property and
entrepreneurship from aboard
 Net Retained earnings from aboard
Depreciation= consumption of fixed
capital

-Depreciation

Gross Net
+Depreciation
NFIA=FIFA-FITA/ net compensation
of employees from aboard + net
property and ent. income from
abroad + net retained income from
abroad

-NFIA

National Domestic

+NFIA
NIT=NET INDIRECT TAXES=IT-
Subsidies

+NIT

Factor Market
Cost Price
-NIT
Aggregates
 GDPmp
 GNPmp
 NDPmp
 NNPmp
 GDPFC
 GNPFC
 NDPFC
 NNPFC
Thank you